Self-invested personal pensions

Of all your investments, a personal pension can seem the most remote.

While it's the most important fund we're likely to contribute to, many of us are happy to hand our investment decisions to a pensions manager.

But it needn't be that way.

A growing number of people are taking control of their pensions through a scheme called a self-invested personal pension (Sipp).

Sipps have been available for more than 10 years, but were not suitable for everyone because their running costs were high.

This limited them to people with at least £100,000 in existing pension funds, or annual investments of £10,000-£15,000.

But costs have come down, although they're still comparatively expensive, making them more attractive for anyone under retirement age who wants to be in charge of their own finances.

Why a Sipp?

The main benefit of a Sipp is that you are in control.

Instead of being restricted to the funds of one insurance company, you can invest in shares, unit and investment trusts, gilts, bonds, cash or commercial property.

Sipps are subject to the same contribution limits as personal pensions but they do enable people to defer buying an annuity at retirement.

Instead you can draw down an annual income while leaving the fund invested.

For more on why you might want to avoid an annuity, take a look at our annuity guide.

Dodds did it

One person who has benefited from a Sipp is Tom Dodds.

Tom worked for British Gas and had built up a decent pension fund.

He left the company to run his own public relations firm in north-east England.

As a result of running his pension as a Sipp he has been able to use the fund - which would have been untouchable otherwise - to help grow his business.

He has bought new offices to house his company. The business pays rent to the fund, so Tom is getting an income. And he hopes the property will increase in value, giving him capital growth as well.

Tom was introduced to Sipps by financial adviser Ian Jackson.

If you are interested in Sipps, you should certainly take independent financial advice

Ian Jackson
Independent Financial Adviser

Ian says: "Tom had obtained benefits with his previous employer that could be transferred into a Sipp.

"We did an analysis that showed it was worth Tom moving his pension from his old employer's scheme.

"But having become a fund, it has to make investments, and we looked at the viability of purchasing a property."

Avoid risky investments

Investing in property is not the ideal route for everyone, but with a growing number of people leaving big employers to set up on their own, there will be more people wanting to unlock their pensions in this way.

If you do go the Sipp route, keep in mind you will need the money in retirement.

You don't want to risk your golden years by investing your pension fund in highly risky ventures and stocks.

And you had better make sure that whatever you invest in can be turned into cash or a regular income.

You will need that when you are no longer earning money.

Ian says: "Tom had to be able to draw an income for his retirement.

"The property has to be saleable come retirement so it's no good buying something for now. You're thinking in terms of 15, 20, 25 years' time and relying on it being saleable then."

If you want to try to use your pension more creatively then Sipps offers that opportunity.

But it is not for everyone.

As Ian says: "If you are interested in Sipps, you should certainly take independent financial advice to see if it is right for you."